UPDATED: Rule implementing ‘high quality liquid asset’ tag for municipals under EGRRCPA in effect

Liquid and readily-marketable, investment grade municipal obligations would be treated as high-quality liquid assets (HQLAs) under liquidity coverage ratios, according to an interim final rule that becomes effective on publication Friday.

In filings with the Federal Register Thursday, the Federal Reserve, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC), said the rule is in response to provisions contained in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155, enacted May 24).

The provision requires the agencies, they noted, for purposes of their liquidity coverage ratio (LCR) rule — and any other regulation that incorporates a definition of the term “high-quality liquid asset” or another substantially similar term — to treat a municipal obligation as HQLA (that is a level 2B liquid asset) if that obligation is, as of the LCR calculation date, “liquid and readily-marketable” and “investment grade.”

Comments on the interim rule are due by Oct. 1

Liquidity Coverage Ratio Rule: Treatment of Certain Municipal Obligations as High- Quality Liquid Assets